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What’s the difference between a bank guarantee and a letter of credit?

A: A bank guarantee and a letter of credit are similar in many ways but they’re two different things. Letters of credit ensure a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn’t go as planned.

A letter of credit , sometimes referred to as a documentary credit, acts as a promissory note from a financial institution, usually a bank or credit union. It represents an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. The letter of credit ensures the payment will be made as long as the services are performed.

For example, an American wholesaler receives an order from a Canadian company. The wholesaler has no way of knowing whether the buyer can fulfill his payment obligations, and requests a letter of credit be provided in their contract. The purchasing company applies for a letter of credit at a bank where it already has funds or a line of credit (LOC). After the goods have been shipped, the bank would pay the wholesaler its due as long as the terms of the sales contract are met, such as delivery before a certain time or confirmation from the buyer that the goods were received undamaged.

The letter of credit substitutes the bank’s credit for that of its client, ensuring correct and timely payment. Letters of credit are especially important in international trade due to the distance involved and potentially differing laws in the countries of the businesses involved. In these transactions, it is not always possible for the parties to meet in person. The bank issuing the letter of credit holds payment on behalf of the buyer until it receives confirmation that the goods in the transaction have been shipped.

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Bank gurantee

While letters of credit are used mostly in international trade agreements, bank guarantees are often used in real estate contracts and infrastructure projects.

Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary; however, unlike a letter of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

Bank guarantees insure both parties in a contractual agreement from credit risk. For instance, a construction company and its cement supplier may enter into a new contract to build a mall. Both parties may have to issue bank guarantees to prove their financial stance and capability. In a case where the supplier fails to deliver cement within a specified time, the construction company would notify the bank, which then pays the company the amount specified in the bank guarantee.

Both bank guarantees and letters of credit work to reduce financial risk. The seller takes on less risk when a letter of credit or bank guarantee is active, and would be more likely to agree to the transaction. These agreements are particularly important and useful in what would otherwise be risky transactions for the seller, such as certain real estate and international trade contracts. Banks, since they are agreeing to take on risk, thoroughly screen buyers interested in one of these transactions.

After the bank has determined that the buyer is a reasonable risk, a monetary limit is placed on the agreement. The bank agrees to be obligated up to, but not exceeding, the limit. This protects the bank by providing a specific threshold of risk. Creditworthy buyers are then issued a letter of credit or bank guarantee.

Description of Instruments:
1. Instrument:              Fully Cash Backed Bank Guarantee {BG}
2. Total Face Value:       Eur/USD 1Million (Min) to Eur/USD 50 Billion (Max)
3. Issuing Bank:            HSBC Hong Kong, Barclays Bank London, Citibank New York, Deutsch Bank Germany or any AAA Rated Bank.
4. Age:                         One Year and  One Day (with rolls and extensions where applicable)
5. Leasing Price:            4% of Face Value plus 2% brokers commission (Applicable only if there are brokers in the transaction)
6. Delivery:                   SWIFT MT-760
7. Payment:                  MT103  Swift Wire Transfer
8. Hard Copy:                Bank Bonded Courier within 7 banking days.

Yiu Fung Finance Company Ltd is a Licensed Money Lender that was incorporated in Hong Kong on March 28, 1980 under  the  Money  Lenders  Ordinance  (Chapter  163  of  the laws of Hong Kong), with Registration Number: 0080313.

We have Fresh Cut Bank Guarantee (BG) for lease at 4% annual leasing fee. We also have other financial instruments such as Standby Letter of Credit (SBLC) DLC etc. Leased Instruments can be obtained at minimal expense to the borrower compared to other banking options. This offer is open to both individuals, SME’s and corporate bodies. We also provide loans and international project funding, our loan interest rate is only 3% per year.

                  OUR SERVICES ARE:

  • Loans: (Non Recourse Loans, Business Loans, Secured Loans, Unsecured Loans, International Project Financing)
  • Purchase Bank Instruments (Bank Guarantees and Standby Letter of Credit)
  • Lease Bank Instruments (BG, SBLC, DLC, Letters of Credit)
  • Letters of Credit (DLC, L/C, Usance LC)
  • Investments and Wealth Management
  • Insurance Underwriting Services
  • PPP and Trading Platforms
  • Corporate Finance

BROKER INQUIRIES ARE WELCOMED AND APPRECIATED:  Our brokers receive 2% commission for referral. Daisy Chains of Brokers, Scammers & Time Wasters Will Not Be Entertained. We assist Clients and brokers in their attempt to secure funding by working on their funding requests that may require innovative financing.

We would welcome the chance to earn your trust and deliver you the best financial service in the industry. Kindly visit our site to read more about our products and services following this link: https://yiufungfinance.blog/services/

For more information kindly contact us via the below contact details:

Email: funding@yiufungfinancelimited.com

Blog: https://yiufungfinance.blog/

Telephone: +85281926260

Skype:   dr.chem80566